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"No worries” over $1bn sukuk repayment - Dar Al Arkan chairman

CMA study reveals higher than thought value for large portion of Saudi developer’s land bank

The kingdom’s biggest listed developer, Dar Al Arkan, is right now uniquely positioned to benefit from the building boom.

By Ed Attwood

Sun 25 Mar 2012 11:58 AM

The chairman of Saudi Arabia’s biggest listed developer, Dar Al Arkan, has said that he is “extremely confident” that the company will be able to repay $1bn worth of sukuk that is due to mature in the third quarter.

“Frankly, I have no worries about repaying the sukuk on its due date, as this is already factored into our financial plans, and we are accordingly building up cash reserves from our operations,” Youssef Al Shelash told Arabian Business in an exclusive interview.

“It is also worth noting that the company has a very solid asset base, which can be used as collateral to secure funding if any gap needs to be plugged. Therefore we are extremely confident that the company will be quite ready to effect the due payment on maturity.”

Dar Al Arkan, which is the process of building six mixed-use megaprojects in Madinah, Riyadh and Jeddah, has been the source of speculation this year as to whether the firm will be able to repay its debts.

Al Shelash said that the firm had cash reserves amounting to two thirds of the sukuk repayment by end-2011, and that outstanding payments – which are currently being collected – would be enough to cover the final third. He also stated that the developer would “comfortably generate funds from ongoing operations in line with recent quarters”.

The Dar Al Arkan chairman also hinted at attempts to raise more sukuk – once the third quarter debt was paid off.

“I think we are not so concerned about this issue, as the loans we have obtained do not exceed 30 percent of total assets, and this categorises the company as one of the best in the region,” he said.

“Therefore, I don’t think we will face any challenges if we intend to obtain more loans.”

Al Shelash also revealed the results of a Capital Markets Authority (CMA) investigation into the value of a portion of the firm’s land bank. The sample – originally believed to be worth SAR9.7bn (around 52 percent of the book value of the entire land bank) – was investigated by a series of independent experts to establish its true worth.

“The fair evaluation results valued the sample at SAR14.8bn – a surplus value of SAR5.1bn over and above the book value recorded in the company’s account books,” the chairman said.

“Company management expects… that the fair value for all the company’s real estate investments, which stands for SAR18.6bn, to reach 153 percent of the book value of these projects. That would be positively reflected on the company’s financial statements.”

Dar Al Arkan’s share price has risen by just under 50 percent in the year to date, proof that investors see the firm as being one of the biggest beneficiaries of King Abdullah’s $130bn social spending package.

That package, announced last year, focuses heavily on the provision of affordable housing for Saudi Arabia’s growing population, which is faced with a lack of supply, rising prices and a dearth of home-financing opportunities.